28 December 1995 External T.I. 9528345 - CAPITAL GAINS ELECTION - CNIL BALANCE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether, in determining the amount of the capital gain that can be sheltered with the capital gains exemption where a capital gains election was filed before the April 30, 1996 filing deadline, the CNIL balance that must be used is the December 31, 1994 or December 31, 1995 balance.

Position:

The December 31, 1994 balance should be used.

Reasons:

The amount of the capital gain that can be sheltered in any one year is determined by reference to, among other things, the individual's cumulative gains limit for the year, which in turn, depends upon the individual's cumulative net investment loss at the end of that same year.

		5-952834
XXXXXXXXXX	C. Chouinard

Attention: XXXXXXXXXX

December 28, 1995

Dear XXXXXXXXXX:

Re: Capital Gains Election - Subsection 110.6(24) of the Income Tax Act

We are writing in response to your letter of October 31, 1995, wherein you requested our comments on the filing of the capital gains election by a sole proprietor in respect of a business.

In the situation you describe, a sole proprietor has a January 31, 1995 year end in respect of his business. According to subsection 110.6(24) of the Income Tax Act (the "Act"), the proprietor is only required to file the capital gains election in respect of the business on or before the proprietor's balance-due day for the taxation year in which the fiscal period of the business that includes February 22, 1994 ends, which in this case is April 30, 1996. However, the proprietor filed the capital gains election in respect of the business on April 30, 1995, that is, for the 1994 taxation year. You inquire whether, in determining the amount of the capital gain that can be sheltered with the capital gains exemption, the proprietor must use his or her cumulative net investment loss ("CNIL") balance as of December 31, 1994 or December 31, 1995.

Our Comments

Subsection 110.6(3) of the Act, which was repealed for the 1996 and following taxation years, provides that, in computing taxable income for a taxation year, an individual who disposes of capital property can deduct an amount not exceeding the least of: (a) the difference between $75,000 and the amounts deducted under subsection 110.6(3) in previous years, (b) the individual's cumulative gains limit at the end of the year and (c) the individual's annual gains limit for the year. In determining the cumulative gains limit at the end of the year, an individual must deduct his or her cumulative net investment loss at the end of the year. In the situation you describe, since the proprietor filed the capital gains election for the 1994 taxation year, the capital gains exemption claimed in respect of the business under subsection 110.6(3) of the Act is with respect to the 1994 taxation year. Accordingly, in our view, to determine the amount of the capital gain that can be sheltered with the capital gains exemption, the proprietor should use his or her CNIL balance as of December 31, 1994.

We trust that these comments will be of assistance.

Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch